Palm Reports Financial Results

Palm shares took a hit on Wednesday after the company reported disappointing financial results on Tuesday coupled with a disappointing
forecast for the current quarter. Highlights for the quarter included the introduction of the Palm Centro, the expanded international release of the Treo 500v and completion of the recapitalization deal with Elevation Partners.

Total revenue in the second quarter of fiscal year 2008, ended Nov. 30, was $349.6 million. Palm had generated $392.91 million in revenue the year prior. Despite the decrease in total revenue, smartphone sell-through for the quarter was 686,000 units, up 11 percent year over year. Smartphone revenue was $282.4 million. Palm had expected to ship the Verizon Palm Treo 755p, but certification issues delayed the release and certainly impacted Palm’s quarterly numbers. "There’s definitely lost business when you fail to ship during the holiday season," said Palm’s CEO Ed Colligan. "We have to build a broader array of products so one miss does not have such a big effect."

Palm is currently undergoing a restructuring program as part of a recapitalization deal with Elevation Partners. Former Apple Inc. executive Jon Rubinstein has joined Palm as executive chairman as part of the restructuring. Rubenstein played a key role in the development of products such as the Apple iPod and iMac computers. Rubenstein is expected to play a vital role in positioning Palm to "lead the next phase of the smartphone and mobile-computing markets."

The Centro has been a success in many ways, but Palm warned of a "tight component supply" for the device because of unspecified issues at one supplier. Priced at just $99, Palm also noted that some canibalization has occured of the higher priced Treo smartphone specific to Sprint’s network. "We saw some cannibalization, but we had expected that," said Colligan. "We are pleased with the early success of the Palm Centro and intend to deliver more Windows Mobile and Palm-based products throughout the next year."

The Treo 755p represents the end of the current generation of Palm smartphones, but Palm’s management certainly appears to have a clear grasp of what’s needed to get the company back on track. During the conference call, Colligan made it clear that Palm’s focus is on developing "breakthrough devices" and "revolutionary designs".

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